An economic analysis of network architectures

Abstract

What effect will the unbundled bearer service proposed by the NRENAISSANCE Committee have on the investment incentives of network providers in the private sector? How will network providers price the unbundled bearer service? The authors provide a preliminary discussion of the economics of an unbundled bearer service with specific reference to the proposed Open Data Network. They focus on the implications of two issues, oligopolistic competition and sunk cost with excess capacity, for industry structure and the unbundled bearer service. The Internet is used as a case study to illustrate trends, and provides a factual background for future analyses. They provide a description of the current Internet industry structure, current Internet approaches to bundling/unbundling and reselling, some examples of the difficulties raised by resale in other communications markets, and the increasing use of long-term contracts between customers and their service providers. The implications for the unbundled bearer service are drawn.